Abstract

http://ssrn.com/abstract=1397208
 
 

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Comovement of Newly Added Stocks with National Market Indices: Evidence from Around the World


Stijn Claessens


International Monetary Fund (IMF); University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute; European Corporate Governance Institute (ECGI)

Yishay Yafeh


Hebrew University of Jerusalem - Jerusalem School of Business Administration; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

September 19, 2011


Abstract:     
We document the prevalence around the world of increased stock price comovement experienced by companies when added to major indices, and shed new light on the causes of this phenomenon. Using newly-constructed and extensive data covering forty developed and emerging markets over the last decade, we document that in most, though not all, countries, when added to a major index, a firm’s return experiences a post-inclusion increase in comovement with the rest of the index, reflected in both a higher beta (especially if the pre-inclusion beta is less than one) and greater explanatory power of the market return (higher R2). Stock turnover and analyst coverage also typically increase upon inclusion. Using a variety of empirical tests, we find that the demand-based view of comovement (the category/habitat views of Barberis, Shleifer and Wurgler, 2005) provides a good explanation for many of our findings. Some results, though, suggest that information-related factors are also important.

Revised version of a paper formerly circulated as CEPR Discussion Paper:
http://ssrn.com/abstract=1311176

Number of Pages in PDF File: 37

Keywords: index inclusion, comovement

JEL Classification: G1, G3

working papers series


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Date posted: May 5, 2009 ; Last revised: October 28, 2011

Suggested Citation

Claessens, Stijn and Yafeh, Yishay, Comovement of Newly Added Stocks with National Market Indices: Evidence from Around the World (September 19, 2011). Available at SSRN: http://ssrn.com/abstract=1397208 or http://dx.doi.org/10.2139/ssrn.1397208

Contact Information

Stijn Claessens
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
202-623-7641 (Phone)
202-5897641 (Fax)
University of Amsterdam - Finance Group ( email )
Roetersstraat 18
Amsterdam, 1018 WB
Netherlands
+31 20 525 6020 (Phone)
+31 20 525 5285 (Fax)
HOME PAGE: http://www.fee.uva.nl/fm/index.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Tinbergen Institute ( email )
Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Yishay Yafeh (Contact Author)
Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )
Mount Scopus
Jerusalem 91905
Israel
+972 2 588 3081 (Phone)
+972 2 588 1341 (Fax)
HOME PAGE: http://bschool.huji.ac.il/facultye/yafeh/
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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